Rental Options for Large Second-to-Third Floor Unit: Help Me Brainstorm?

[Dean Lovell]

I'm the owner of a duplex in Uptown Minneapolis, wondering the best way to rent out a new space. I recently renovated the attic into additional living area, changing the 3BD 1BA second-floor unit into a 4BD 2BA unit across the second and third floors. I envisioned the new space as a master suite if it is rented to a single family. However, I have good tenants on the second floor, and wanted to explore options to rent out the third floor independently. **Any thoughts on the options below?**

Relevant information:

- Third floor cannot be a permitted separate unit--there is only one entrance/exit stairway (MPLS requires two), and no sprinkler system (which would allow us just one exit)

- Third floor electric and gas can be measured separately, but all are under the same bill

- By rekeying two doors, there could be completely separate access to the second and third floors

- Current second-floor rent is $2000

Option 1: End Lease and Rent as a Full Unit

This is the most straightforward option. I could end the lease with my current tenants, and find a family or group that would like a 4 BD 2 BA unit. It would function well, but I am concerned about (1) finding the right tenants, as always, and (2) whether the incremental revenue of the new space will help pay off the renovation. In Uptown, a 4 BD 2 BA house might rent for $2500-2900 depending on quality. Certainly less than two independent spaces (the third floor could be $1200 on its own).

Option 2: Long-Term Rental of Third Floor (Separate from Second Floor)

I've been wondering if there is a way to rent the third floor separately that would be safe and legal. While the third floor doesn't have a kitchen (not legal), we could easily provide a kitchenette space for a toaster oven/hot plate/microwave that could be enough for many folks. Essentially, the second and third floors could be independent living areas. Could I have two leases for the same unit? Or alternatively, I could say to my second floor tenants that I need to expand the lease to cover the third floor, but offer to find a sub-lessee who would take on the third floor space and operate completely independently from them, and split utilities according to usage?

Option 3: Mid-Term Rental of Third Floor (e.g. Traveling Nurse Program)

Like Option 2, except maybe different regulations apply? I could find a sublessee for my second-floor tenants using this program, who would stay between 1 and 3 months. The kitchenette system would work even better in this situation, and I have the furniture to make the space fully furnished for this sort of rental.

Option 4: Airbnb

Could be lucrative, but also a hassle. I know that Minneapolis has new regulations about short-term rentals, so that any separate unit has to be permitted separately. But I could also list as a "separate room" within the unit, but clarify that it is completely separate in the listing. I don't know if this follows guidelines or not.


Thanks in advance for the thoughts. Might just be time for a real estate lawyer...

[Bruce Runn]

I'd either rent as a 4 bed/2 bath or work with the 2nd floor tenants to let them sub lease the space but have it included in their lease so you are not part to it other than charging them more but leaving meat on the bone for them to coordinate.